Tuesday, March 18, 2003

Schroder Unveils German Reform Package

The Financial Times views this package as bold. I'm not so sure. It's a stick, but where's the carrot? Remember German's are saving and not consuming sufficiently. Promises to cut pensions, while they may be inevitable, are hardly going to change this tendency. It is really time for some imaginative thinking. Perhaps the most revealing part of his speech was the declaration that: "either we modernise, or we will be modernised by the unremitting force of the markets". I need time to think about this. I'll try and blog something more over the weekend.

Gerhard Schröder, the German chancellor, committed his government to a bold programme of reforms in a landmark speech to parliament that went beyond the measures leaked widely in the past week. Mr Schröder told a packed Bundestag that Germany had to adjust its social welfare and health system to straightened circumstances, while the stretched state pensions cover would require further changes to meet the challenges of an ageing population and falling birthrate.

All three areas are currently subject to thorough review procedures. The health ministry is due to produce wide ranging suggestions in May, while a special commission on social welfare and pensions should report by early summer. But it was the chancellor's comments on the labour market that went beyond the cautious steps expected and provoked unease among traditionalists in his Social Democratic party and their trade union backers.

Mr Schröder, as expected, said the government would propose legislation to soften Germany's rigid rules on job protection in an attempt to raise incentives for smaller companies to hire new labour. Compensation procedures for job losses will also be simplified to try to avoid the complex court actions that often accompany dismissals. The chancellor also met expectations of some cuts in unemployment benefit, with a simplification of the current system governing payments to the longer term out of work. Where he surprised observers was in also announcing a significant reduction in the duration of the main unemployment benefit, to 12 or 18 months, depending on the age of the recipient, from a maximum 32 months at present.Mr Schröder also went significantly further than expected in telling workers and employers they should consider ways around Germany's inflexible national pay bargaining system in favour of one-off local level arrangements in special circumstances.
Source: Financial Times
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